Energy Recovery — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenue for Q3 2026 was $11.2 million, a 65% decrease compared to $32.0 million in Q3 2025; year-to-date revenue was $32.9 million, down 52% from $68.1 million in the prior period.
• Gross margin was 37.5% in Q3 2026, down 2,670 basis points from 64.2% in Q3 2025; year-to-date gross margin was 48.2%, down 1,490 basis points from 63.1%.
• Operating expenses were $14.0 million in Q3 2026, a 17.2% decrease from Q3 2025, driven by lower employee compensation (including stock-based compensation) and consulting costs.
• Loss from operations was $9.8 million in Q3 2026, a decline of $13.5 million compared to income from operations of $3.7 million in Q3 2025.
• Net loss was $6.3 million in Q3 2026 compared to net income of $3.9 million in Q3 2025; year-to-date net loss was $21.8 million versus a net loss of $4.0 million in the prior period.
• Diluted loss per share was $0.12 in Q3 2026 compared to $0.07 earnings per share in Q3 2025; year-to-date diluted loss per share was $0.42 versus $0.07 in the prior period.
• Cash and investments totaled $85.6 million as of September 30, 2026.
• Net cash used in operating activities was $9.8 million in Q3 2026; year-to-date net cash provided by operating activities was $28.1 million.
• Free cash flow was $(10.1) million in Q3 2026; year-to-date free cash flow was $25.9 million.
• Adjusted EBITDA loss was $7.8 million in Q3 2026 compared to an adjusted EBITDA profit of $6.8 million in Q3 2025; year-to-date adjusted EBITDA loss was $17.5 million.

Business Segments and Product Lines:

• Megaproject revenue was $0.9 million in Q3 2026, a 95% decrease from $18.4 million in Q3 2025; year-to-date Megaproject revenue was $4.0 million, down 88% from $33.2 million.
• Original equipment manufacturer (OEM) revenue was $6.2 million in Q3 2026, down 31% from $9.0 million in Q3 2025; year-to-date OEM revenue was $18.0 million, down 16%.
• Aftermarket revenue was $4.0 million in Q3 2026, down 13% from $4.6 million in Q3 2025; year-to-date Aftermarket revenue was $10.9 million, down 20%.
• Desalination segment revenue was $10.7 million in Q3 2026; year-to-date Desalination revenue was $31.1 million.
• Wastewater segment revenue was $0.5 million in Q3 2026; year-to-date Wastewater revenue was $1.6 million.
• Corporate and Other segment revenue was $0.03 million in Q3 2026; year-to-date Corporate and Other revenue was $0.2 million.

Risks and Challenges:

• The decline in revenue and operating income was primarily attributed to the war in Iran.
• Lower gross margins were driven by lower volume, product mix, and indirect manufacturing costs, partially offset by channel mix.
• The company incurred restructuring charges of $2.4 million year-to-date 2026, including a $1.6 million inventory reserve and $1.7 million in impairment of goodwill.
• Forward-looking statements note risks related to future demand, customer and third-party partner performance, and timing of revenue.

Other Key Points:

• Management released a shareholder letter reviewing business and financial updates, available on the company's investor relations website.
• A conference call to discuss financial results was held on November 4, 2026.
• The company reported a net loss before income taxes of $9.2 million in Q3 2026 and $28.3 million year-to-date.
• Stock-based compensation expense totaled $1.0 million in Q3 2026 and $4.4 million year-to-date.
• Capital expenditures were $0.3 million in Q3 2026 and $2.1 million year-to-date.
• The company repurchased common stock and incurred net excise tax activity totaling $23.2 million year-to-date.